Monthly Archives: October 2014

Other than the fact that recent months have seen rallies on the day before an FOMC Statement release, there really wasn’t any reason to have expected yesterday’s nearly 200 point climb.

Although there was a gap higher to start the day, a larger move higher started at about 1 PM, with no real news to account for that optimism.

It really is very confusing to understand what is going on, particularly if you believe that the recent abrupt bounce higher of the nearly past two weeks has been due to the suggestion that the Federal Reserve wouldn’t be exiting its Quantitative Easing policies this month, as scheduled.

It would seem then that it is a binary bet that is on the table. Either QE ends or it doesn’t and that was a fairly big bet being made yesterday.

Of course, there were those who believed that yesterday’s market was an expression of confidence that the market could continue to thrive without QE continuing and then there were those who believed that the 200 points tacked on was an expression of the FOMC’s decision to continue some form of QE.

At least we’ll have some idea this afternoon.

If the past few months have been any indication, in fact, if Janet Yellen’s tenure as the Federal Reserve Chairman is any indication, the market will interpret whatever is contained in the statement as another reason to move higher.

While the recent strength has essentially eroded all of the gains in volatility, at this point I wouldn’t mind seeing the gains continue, as I would like to see some assignments getting made and the opportunity to replenish my cash reserves, which are at a 5 year or more low point.

Yesterday’s really unexpected rally was simply a good opportunity to take a break and let the momentum carry you along, but in the right direction.

The trade in Ford, in order to capture the dividend, was one of those that also got taken along for the ride. I really didn’t expect it to breech the $14.12 level, which would have made it susceptible for early assignment. After having gotten to about $14.15 it reversed course and fell to about $14.07 with a bit more than an hour to go in trading. But that final hour carried everything along and Ford shares went back up to $14.16 so it was time to do that rollover, although the one day return wouldn’t have been too bad, particularly if enough shares were held, but the potential 2 week return was even better.

Today will probably be a “wait and see” kind of day. SInce Wednesday’s are usually the slowest trading day of my week, even when trading frequently, as has been the case up until the past couple of weeks, there’s even better reason to sit and wait until 2 PM.

Of course, if any strength pops up in the market before that FOMC release and the opportunity presents to sell some options, I would jump at that opportunity. Unfortunately, yesterday there were very few buyers of options and very large bid – ask spreads that couldn’t really be bridged, as I tried to get option sales made in a number of positions, but without much luck, other than for Kellogg and Ford.

That difficulty indicated to me a less optimistic option market, at least on the call side of the equation.

Another strong move higher today could change that and might bring more call buyers back into the market, so I hope that whatever the FOMC offers today there will be fewer disappointed people than there will be optimistic people ready to drive prices even higher.

For those that actually look at the “Economic Calendar” there’s so little on it this week other than the FOMC Statement release on Wednesday.

If this wasn’t a busy week for earnings releases it would truly be like the last week of summer all over again.

Lately, even with a few moments of Ebola related fear, and despite all of the unresolved stories around the world, it has been very quiet. That may explain some of the market’s recent volatility. It’s like leaving a child alone, but with no source of stimulation, so they have to create their own inside of the vacuum they’re in.

Instead of focusing on the varying bits of economic information that is usually released in any given week, this week the mind is free to wander and speculate about so many things. Just like leaving a child with any structure or guidance, that kind of vacuum facing investors can be a dangerous thing.

Maybe that’s what explains today’s odd 187 point higher. There was no other reason that I could see, although the past few days before an FOMC Statement release have also been inexplicably positive, so maybe that’s the simple explanation.

For the moment all is quiet in and around Russia, Hong Kong seems to have abated, the ECB is gaining irrelevance, ISIS may be stalling and Ebola still remains other people’s problem for the most part.

In the meantime oil is at a low point that could scarcely have been imagined not too long ago and corporate earnings have, for the most part been pretty good. With the exception of energy companies those low prices have got to be good news for economic growth and corporate profits in quarters ahead.

By most measures that should mean a soaring market and maybe that constellation of factors is what helped create such a rapid reversal of the 9% decline from just a few weeks ago.

Whether those are enough to continue that climb may get some answer tomorrow as the FOMC chimes in and may give some insight on whether James Bullard’s opinions are more than just opinions and may in fact be upcoming policy.

That might be a short term tonic, but may raise more questions and uncertainty as the need for Federal Reserve intervention takes on the appearance of a medication for a chronic ailment.

Lately there has been some talk that interest rates, originally thought to be poised for a rise sometime in the first half of 2015, may now not occur until 2016. In the meantime, however, interest rates on the 10 Year Treasury Note increased by about 15%, although still far below where so many smart people thought it would be just 6 months ago.

So the question
“What comes next?” is a fair one, as there are so many mixed signals at the moment and fairly few inputs to help paint any kind of picture.

This morning I heard one analysts say that the morning’s higher futures meant that it was an indication of investors saying that the world would not end if Quantitative Easing came to an end.

I suppose that one could equally be correct to say that the morning’s rise in futures was an indication that the world was embracing the idea of a continuation of Quantitative Easing.

The strength that the market showed all throughout the day was certainly an indication of something and for some reason.

The more you follow things the more you realize that the diversity of opinion is really the only thing that allows markets to function. This morning, for example, Twitter was upgraded from “sell” to :”hold” at one firm and downgraded to “sell” from “hold” at another. No matter how those ratings may be nuanced a few weeks from now in an effort to protect reputations, there’s not too much debate over the diametric differences coming from two esteemed sources, presumably with access to all of the same input information.

Imagine if it is so difficult to come to an agreement over a single company how difficult it must be to understand where markets and world economies are heading, especially when the inputs aren’t necessarily the most accurate or the books may be cooked, as may occasionally be the case in China.

So at the moment I continue to be in a “watch and wait” mode. If the market does move higher I’m more than happy to be a beneficiary of that move, but I’m not terribly enthused about betting on those prospects for now.

Based on the trades that I tried to execute today, selling new calls on shares of Chesapeake Energy, Holly Frontier, T-Mobile and Joy Global, despite their strength, all of which well out-performed the S&P 500 on the day, there was no such enthusiasm among buyers in the option market.

They weren’t biting.

I don’t know what that means.

If you’re a contrarian it means that those stocks, or maybe the market as a whole, is going higher.

If you look at things on the basis of their superficial appearances, that just means that those particular investors don’t see further upside, but as they say, that’s what makes a market.

For those that actually look at the “Economic Calendar” there’s so little on it this week other than the FOMC Statement release on Wednesday.

If this wasn’t a busy week for earnings releases it would truly be like the last week of summer all over again.

Lately, even with a few moments of Ebola related fear, and despite all of the unresolved stories around the world, it has been very quiet. That may explain some of the market’s recent volatility. It’s like leaving a child alone, but with no source of stimulation, so they have to create their own inside of the vacuum they’re in.

Instead of focusing on the varying bits of economic information that is usually released in any given week, this week the mind is free to wander and speculate about so many things. Just like leaving a child with any structure or guidance, that kind of vacuum facing investors can be a dangerous thing.

For the moment all is quiet in and around Russia, Hong Kong seems to have abated, the ECB is gaining irrelevance, ISIS may be stalling and Ebola still remains other people’s problem for the most part.

In the meantime oil is at a low point that could scarcely have been imagined not too long ago and corporate earnings have, for the most part been pretty good. With the exception of energy companies those low prices have got to be good news for economic growth and corporate profits in quarters ahead.

By most measures that should mean a soaring market and maybe that constellation of factors is what helped create such a rapid reversal of the 9% decline from just a few weeks ago.

Whether those are enough to continue that climb may get some answer tomorrow as the FOMC chimes in and may give some insight on whether James Bullard’s opinions are more than just opinions and may in fact be upcoming policy.

That might be a short term tonic, but may raise more questions and uncertainty as the need for Federal Reserve intervention takes on the appearance of a medication for a chronic ailment.

Lately there has been some talk that interest rates, originally thought to be poised for a rise sometime in the first half of 2015, may now not occur until 2016. In the meantime, however, interest rates on the 10 Year Treasury Note increased by about 15%, although still far below where so many smart people thought it would be just 6 months ago.

So the question “What comes next?” is a fair one, as there are so many mixed signals at the moment and fairly few inputs to help paint any kind of picture.

This morning I heard one analysts say that the morning’s higher futures meant that it was an indication of investors saying that the world would not end if Quantitat
ive Easing came to an end.

I suppose that one could equally be correct to say that the morning’s rise in futures was an indication that the world was embracing the idea of a continuation of Quantitative Easing.

The more you follow things the more you realize that the diversity of opinion is really the only thing that allows markets to function. This morning, for example, Twitter was upgraded from “sell” to :”hold” at one firm and downgraded to “sell” from “hold” at another. No matter how those ratings may be nuanced a few weeks from now in an effort to protect reputations, there’s not too much debate over the diametric differences coming from two esteemed sources, presumably with access to all of the same input information.

Imagine if it is so difficult to come to an agreement over a single company how difficult it must be to understand where markets and world economies are heading, especially when the inputs aren’t necessarily the most accurate or the books may be cooked, as may occasionally be the case in China.

So at the moment I continue to be in a “watch and wait” mode. If the market does move higher I’m more than happy to be a beneficiary of that move, but I’m not terribly enthused about betting on those prospects for now.

There is very little scheduled news this week and not too much anticipated on the unscheduled side, unless the New York City Ebola patient suffers a downturn.

Otherwise the world is pretty quiet as this week starts. Even the Brazilian market’s meltdown in the morning’s future’s trading, dropping about 8% on news of the incumbent winning the presidential election seemingly barely got a notice by the US markets. When trading closed for the day you never would have known that the US cared about anything in Brazil, at all.

The only real story this week and it may be more important than usual, will be Wednesday’s release of the FOMC Statement.

Any alteration in the wording that we’ve become accustomed to that might support Federal Reserve Governor James Bullard’s belief that the Federal Reserve should delay exiting Quantitative Easing will have some kind of an impact

Although it could be coincidental it appears that the market’s sudden bounce higher from its 9% decline was triggered by Bullard’s comments. What’s never known is when those who are typically non-dissenting FOMC voting Governors say something whether it’s their opinion or reflective of what be the majority opinion.

But even if that’s not known the second unknown is how the market would react to news that the FOMC didn’t believe that the economy could withstand a complete exit by the Federal Reserve.

When Bullard made his comments the market embraced the idea and ran with it, but if it becomes reality it could easily be otherwise, as just another example of how the market reacts to rumors and to news. Once that specific reality hits the likely question would become “Seriously, the economy is that bad?” and that kind of forward looking doubt leads to selling.

After two weeks of not having made a single new purchase I was beyond anxious to do something but don’t have the confidence that there will be much reason to stick any necks out until Wednesday or Thursday.

Although there was finally an opportunity to execute a new purchase today, I expect and hope, that the Intel shares, which go ex-dividend next week, get assigned early. At this point I would trade off the dividend for the two weeks worth of premium and the ability to redeploy that cash.

Lately, however, even what may have looked like relatively sure things have been anything but.

For now I’d be content to see a repeat of the past week, even though there were very few trades to show for it and even while watching volatility drop and taking premiums along with it. At least there was some recovery of share prices. Of course, that’s only true if they were something other than energy and metals shares.

Sooner or later those have to jump out of their correction mode.

Today’s drop in energy was the result of a call by a Goldman Sachs analyst for $70 oil. That came from the same analyst who last called for $150 oil.

Never mind.

But other than the call about 9 months ago for falling precious metal prices, Goldman Sachs, as great as it is at everything else, has had a really rough past 10 years when it comes to predicting commodity price trends.

I think today’s call for $70 oil may be a sign of having reached or being very near the bottom.

For the time leading up to Wednesday’s FOMC Statement release there will be plenty of more earnings reports being released, including the always exciting Facebook and Twitter, but the companies that have the greatest likelihood of being able to move whole markets have already reported.

This morning the US futures market was just very mildly lower which lead you to believe that the drop in Brazil is considered to likely be a blip and to have limited consequence. Of course, the slightest suggestion by the incumbent that recognizes the need for some economic reforms would do wonders for their market, but there is precedent for victors believing that they have a mandate even when barely crossing the 50% support vote.

But we still probably don’t care very much, regardless of what direction Brazil takes, especially as their oil reserves and output mean less and less for the United States.

So today was likely to be another day to sit back and see where events would take us in what should have been a quiet day and did turn out to be a quiet day.

Whether tomorrow will do as expected, and also remain quiet is another question as those have been very rare in the past month as triple digit move days have become the new norm for now. Two such days in a row may be asking for too much.

There is very little scheduled news this week and not too much anticipated on the unscheduled side, unless the New York City Ebola patient suffers a downturn.

Otherwise the world is pretty quiet as this week starts. Even the Brazilian market’s meltdown in the morning’s future’s trading, dropping about 8% on news of the incumbent winning the presidential election is seemingly barely getting a notice by the US markets.

The only real story this week and it may be more important than usual, will be Wednesday’s release of the FOMC Statement.

Any alteration in the wording that we’ve become accustomed to that might support Federal Reserve Governor James Bullard’s belief that the Federal Reserve should delay exiting Quantitative Easing will have some kind of an impact

Although it could be coincidental it appears that the market’s sudden bounce higher from its 9% decline was triggered by Bullard’s comments. What’s never known is when those who are typically non-dissenting FOMC voting Governors say something whether it’s their opinion or reflective of what be the majority opinion.

But even if that’s not known the second unknown is how the market would react to news that the FOMC didn’t believe that the economy could withstand a complete exit by the Federal Reserve.

When Bullard made his comments the market embraced the idea and ran with it, but if it becomes reality it could easily be otherwise, as just another example of how the market reacts to rumors and to news. Once that specific reality hits the likely question would become “Seriously, the economy is that bad?” and that kind of forward looking doubt leads to selling.

After two weeks of not having made a single new purchase I’m beyond anxious to do something but don’t have the confidence that there will be much reason to stick any necks out until Wednesday or Thursday.

I’d be content to see a repeat of the past week, even though there were very few trades to show for it and even while watching volatility drop and taking premiums along with it. At least there was some recovery of share prices.

For the time leading up to Wednesday’s FOMC Statement release there will be plenty of more earnings reports being released, including the always exciting Facebook and Twitter, but the companies that have the greatest likelihood of being able to move whole markets have already reported.

This morning the US futures market is just very mildly lower which leads you to believe that the drop in Brazil is considered to likely be a blip and to have limited consequence. Of course, the slightest suggestion by the incumbent that recognizes the need for some economic reforms would do wonders for their market, but there is precedent for victors believing that they have
a mandate even when barely crossing the 50% support vote.

But we still probably don’t care very much, regardless of what direction Brazil takes, especially as their oil reserves and output mean less and less for the United States.

So today is likely to be another day to sit back and see where events take us in what should be a quiet day.

Whether it will be so is another question as those have been very rare in the past month as triple digit move days have become the new norm for now.